Define: Carryover Basis

Carryover basis is a tax term referring to the transfer of an asset from one party to another, typically through a gift or inheritance, where the recipient’s basis in the asset is the same as the basis of the donor or decedent. In other words, the recipient inherits the asset with the same tax basis (usually the original cost of the asset to the donor) that the donor had, rather than obtaining a new or stepped-up basis at the time of transfer. This means that if the asset is later sold by the recipient, the gain or loss is calculated based on the original basis of the asset. Carryover basis is contrasted with stepped-up basis, where the basis of an asset is adjusted to its fair market value at the time of inheritance. Understanding carryover basis is important for tax planning and determining the tax consequences of transferring assets between parties, as it affects the amount of taxable gain or loss realised upon the subsequent sale of the asset by the recipient.

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This glossary post was last updated: 29th March 2024.